Purchased A Car In Your Business Recently? What You Need To Know
As part of the Government’s Covid-19 economy stimulus package, the Government increased the instant asset write-off thresholds for depreciating assets to $150,000 for some businesses, and from 6 October 2020 until 30 June 2022, certain businesses are also entitled to the temporary full expensing of depreciating assets. This has encouraged more businesses to make an investment in cars and other motor vehicles.
In response to the increased number of vehicles being purchased in companies and trusts the ATO have announced that they will be closely looking at all cars registered to businesses from the time the stimulus measures were announced. Specifically they will be looking at businesses to ensure Fringe Benefits Tax (FBT) compliance. The ATO will use motor registry data to identify vehicles registered to companies and compare this to:
FBT returns lodged
Disclosure of employee contributions in income tax returns; and
A new form required to be lodged with their 2021 income tax return which discloses the amount paid for assets where the increased instant asset write-off or temporary full expensing of depreciating assets benefits were accessed.
A fringe benefit is a non-cash benefit, such as a car, provided to an employee (including directors of a company) by a business. As soon as a car owned by your business is parked in yours or an employee’s driveway overnight you will be caught by the FBT rules, even if the vehicle is primarily for business use.
Generally, an FBT return will only need to be lodged if there is an FBT liability. If an employer provides an employee with a fringe benefit, the employer can reduce the taxable amount of the fringe benefit by having the employee contribute towards the cost of the fringe benefit. For example, if the employer is providing a car fringe benefit and the value of the benefit is $2,000, the employee can pay the employer $2,000 to reduce the FBT to nil. Alternatively, if you are a related director or shareholder, you (or your accountant) can do a journal entry as at 31 March to take up the employee contribution. The employee contribution is inclusive of GST and the GST must be remitted to the ATO.
While we are comfortable with the approach above, given the ATO’s heightened interest in cars this year, a more prudent approach is to lodge a nil FBT return. The return would disclose the value of the car benefit provided and offsetting employee contribution. The benefit of this approach is, as long as nothing untoward has happened, the amendment period for an FBT return is 3 years from the date the FBT return is lodged. If a return has not been lodged, the ATO has an unlimited time period to go back and review whether you should have paid FBT.
Regardless of whether you lodge an FBT return, you will still need to keep records of your fringe benefits. For cars, you will need to keep a logbook for a period of a representative period of 12 consecutive weeks. A new logbook must be completed every five years or whenever there is a change in usage (for example, you drive the car less for business purposes). This is to establish the business use percentage of the car. In simple terms, once this percentage has been calculated it is multiplied by the vehicle’s running cost. This method is recommended in cases where the business use of the vehicle is high. If a logbook is not kept, the value of the fringe benefit is 20% of the GST-inclusive cost of the car. This method is often most advantageous when the business use is lower.
There are special rules for dual cabs – just because you own a dual cab it does not automatically mean they are exempt from FBT. Furthermore vehicles that have been wrapped in advertising are also subject to FBT.
The next FBT year ends on 31 March 2021, just a few short weeks away. The due date for lodgement of a return is 25 June.
In summary, we recommend you lodge an FBT return - if an FBT return is not lodged, the ATO has an unlimited time period to conduct an FBT audit and issue FBT assessments. Book a consultation with us today if you would like to discuss further.
If you would like specific advice tailored to your business and circumstances, Accounting Heart offers affordable service packages where you can work with Sonia one-on-one to help you get your business where you want it to be. Book your FREE Discovery Call to find out more.
Disclaimer: This is general information only and is not advice of any sort. No warranty or representation is provided by Accounting Heart Pty Ltd as to the accuracy, currency or completeness of the information contained in this blog. Readers of this blog should not act or refrain from acting in reliance upon any information contained herein and must always obtain appropriate taxation and / or other advice as may be appropriate having regard to their particular circumstances.